The British company Marconi plc had been known as The General Electric Co. Ltd. (GEC) for more than 100 years before changing its name and focus in 1999. During the 20th century it grew through acquisitions to become England’s leading electrical company and one of Europe’s top defense electronics contractors. In the late 1990s the company divested many of its traditional businesses, culminating in the $12 billion sale of its defense electronics business to British Aerospace in 1999. At the same time it began redefining itself as an information technology (IT) company with two major acquisitions, Reltec and Fore Systems, that positioned the company to compete in the rapidly changing telecommunications industry.

19th-century Origins

Marconi’s immediate predecessor, GEC, had its origins in G. Binswanger and Company, an electrical goods wholesaler established in London during the 1880s by a German immigrant named Gustav Binswanger (later changed to Byng). In 1886 Byng was joined by another German immigrant, Hugo Hirst (later Lord Hirst), who had experience with several applications of the new electrical power; he had driven an electrically powered boat on the River Thames, ridden on an electric cycle, and even developed an electric-powered dog cart for an Indian rajah. The men changed the company’s name to The General Electric Apparatus Company and became wholesalers of electric products, with an eye toward someday becoming manufacturers of electric products. The following year, they issued the first electrical catalog of its kind.

In 1888 the firm acquired its first factory, in Manchester, to manufacture telephones, electric bells, ceiling roses, and switches. In 1889 The General Electric Co. Ltd. was formed as a private company with its main office in Queen Victoria Street, London. GEC developed the use of china as an insulating material in switches and began manufacturing light bulbs in 1893. Osram, a separate company, was set up in 1909 for the manufacture of lamps.

Expansion under Lord Hirst: 1900-40s

In 1900 GEC was incorporated as a public limited company. There was a growing demand for lamps and lighting equipment, and the company expanded in England and abroad, establishing branches in Europe, Japan, Australia, South Africa, and India, with substantial export trade to South America. In 1902 GEC built its first factory, the Witton Engineering Works, near Birmingham.

During this time, GEC operated with Byng as chairman and Hirst as managing director. When Byng died in 1910, Hirst took full control as chairman and managing director until his death in 1943. Under his direction GEC became one of the major companies in the United Kingdom.

During World War I GEC produced radios, signaling lamps, and arc lamp carbons for the war effort. As a result of the heightened demand, GEC’s workforce swelled to over 15,000, and the company became a major player in the electrical industry. Between the two wars GEC expanded to become an international corporation as well as a national institution in England. In 1918 GEC took over Eraser & Chalmers, a heavy engineering firm, and the following year it established Britain’s first separate industrial research laboratories at Wembley, headed by Sir JJ. Thompson, a Nobel Prize-winning physicist. In 1921 the company moved its headquarters to Kingsway, London. The company kept busy during the decade supplying electrical equipment for use in Britain’s National Grid, a network of power-generation stations built to meet the growing industrial and residential demand for electric power. In the 1930s, GEC began early research into television technology.

GEC grew through acquisitions, joint ventures, and expanding both its manufacturing operations overseas and its domestic branch network. The company was a major supplier of electrical and engineering products during World War II. Major contributions included the development of the cavity magnetron for radar, advances in communications technology, and the ongoing mass production of lamps and lighting equipment.

GEC’s growth slowed following World War II. In spite of growing demand for electrical consumer goods and large investments in heavy engineering and nuclear power, GEC’s profits began to fall for the first time, due to increasing competition and internal disorganization.

The Weinstock Era: 1960-90s

In 1961 GEC took over Radio and Allied Industries, which manufactured radio and television sets. The acquisition brought Arnold Weinstock to GEC, and he took over as managing director in 1963. GEC was having trouble meeting its payroll at the time, so Weinstock worked to reduce the firm’s payroll and move the company’s main office from Kingsway to smaller quarters at Stanhope Gate. While implementing this program of cutbacks, Weinstock also rejuvenated GEC through a series of mergers. In 1967 GEC acquired Associated Electrical Industries (AEI), which included Metropolitan-Vickers, BTH, Edison Swan, Siemens Bros., Hotpoint, and W.T. Henley. In 1968 GEC merged with English Electric, which included Elliott Bros., The Marconi Co., Ruston and Hornsby, Stephenson, Hawthorn & Vulcan Foundry, Willans and Robinson, and Dick Kerr. These companies were primarily electronics and electrical equipment manufacturers.

GEC continued to expand under Weinstock in the 1970s with the acquisition of Yarrow Shipbuilders in 1974 and A very in 1979. In the late 1970s GEC won several major government contracts in defense and the public sector from the British Ministry of Defense, British Rail, the Central Electricity Generating Board, British Telecom, and local government. These defense, telecommunications, and power generation contracts helped keep GEC’s plants running at full capacity and attracted investors.

In the mid-1980s GEC had annual sales equal to $8.7 billion, the equivalent of $2 billion in cash, and very little debt. All told, the company had about $7 billion in assets. GEC built up its cash reserve under Weinstock by keeping its dividend payouts low compared to other electrical companies. From 1975 to 1985 the company had a higher return on equity than the American General Electric Co. or Westinghouse. It also spent a greater percentage of its revenues on research and development.

For fiscal 1985 (ending March 31) GEC turned a profit worth $590 million. About half of the firm’s revenues came from electronics, electrical equipment, and telecommunications. The other half came largely from power generation and automation equipment. With its huge cash reserves, the firm was positioned to make more acquisitions.

In 1985 GEC made a hostile $1.75 billion bid for Plessey Company, pic. Plessey resisted the takeover, claiming the merger would be anticompetitive. In August 1986 the British government’s Monopolies and Mergers Commission ruled the takeover would be against public interest because it would reduce competition. Still, the two companies were both involved in System X public switches and had been amenable to the idea of combining these activities. Their main customer in this area was British Telecommunications pic. By 1988 the two companies had formed GPT, a joint venture the primary business of which was to supply British Telecom with System X switches.

GEC’s Avionics subsidiary accounted for about 17 percent of the firm’s revenues in the mid-1980s. In 1986 it lost a British government contract to Boeing for early-warning aircraft (AWAC) and had to terminate its nine-year, $1.33 billion Nimrod program.

In 1987 GEC and Simon Engineering plc entered into a joint venture to manufacture programmable logic controllers for industrial applications in the Soviet Union. Simon would build the plant in the Soviet Union, while GEC would provide technical expertise to product the controllers. The contract was valued at $480 million.

Also during this time, GEC formed a joint venture with two American companies—General Electric Co. and Bendix Corp.—to produce advanced turbines for aerospace engines and industrial machinery. GEC’s Ruston Gas Turbines subsidiary had previously only manufactured turbines for industrial applications, notably for the North Sea oilfields.

Company Perspectives:

If you could build a communications and data networking company with the ideal credentials for the Internet Age, what would it look like? It would be built on a solid foundation—a legacy of innovative thinking and individual accomplishment. It would lead the industry in Internet Age technology: optical networking, transmission and next-generation access for the New Public Network, and enterprise switching and e-commerce solutions for the Modern Enterprise. And it would have a service culture so strong that nothing would stand in the way of delivering on a commitment to a customer. It’s here. Marconi pic. The legacy of Marconi, the father of modern communications. The power of Marconi Communications’ and Fore Systems’ technology. And the commitment to absolute reliability that thousands of customers worldwide already appreciate.

GEC was broadly diversified in defense and non-defense markets, with defense accounting for 43 percent of the firm’s 1987 revenues. The loss of the AW AC contract in 1986 to Boeing was a major blow to the firm, but GEC remained the largest supplier of defense electronics to the British Ministry of Defense in 1988. Most of the firm’s defense operations were organized under a subsidiary called GEC Marconi Ltd. GEC also owned a controlling interest in Canadian Marconi, which made communications equipment, avionics, and microelectronic components. During 1988 GEC sold Cincinnati Electronics to Canadian Marconi to better integrate Marconi’s North American operations. Cincinnati Electronic specialized in tactical communications systems and jammers and was a leading developer of manpack transceivers, antennae, and intercommunication sets. It also made the infrared receiving sets used on aircraft to warn of missile launches and to initiate appropriate countermeasures.

In the area of defense GEC was also a major developer and producer of air, naval, and surface radar. GEC Avionics was a leading supplier of various systems and displays, and in 1987 acquired the flight control division of Lear Siegler as well as Developmental Sciences Corp., which manufactured remotely piloted vehicles. Other units of GEC were actively involved in the European fighter aircraft program.

Toward the end of 1988 GEC teamed with Germany’s Siemens AG to try to purchase Plessey for the equivalent of $3.1 billion. Although Plessey rejected the offer, consolidation in the European central office switch market appeared inevitable, given the high cost of developing next-generation switches and the coming 1992 unification of the European marketplace. In January 1989 the U.S. Department of Defense, in response to concerns expressed by Plessey, ruled that the proposed hostile takeover was not a risk to national security. However, the European Economic Commission (EEC) and the British government decided to investigate the proposed merger as possibly anticompetitive. As part of its defense, Plessey tried to buy out GEC’s interest in their cooperative telecommunications venture GPT, claiming that by taking on Siemens as a partner GEC was violating the terms of the GPT venture. Meanwhile, a consortium of other companies, calling itself Metsun Ltd., announced it would try to take over GEC. However, Metsun proved shortlived and quickly cancelled its plans to purchase GEC.

In other joint ventures, GEC and Compagnie General D’Electricitie (CGE) formed the joint venture GEC Alsthom. The main purpose of the venture was to combine the two companies’ power generation, electricity distribution transmission, and rail transport activities to create a stronger European player in international markets.

Meanwhile, GEC announced it would enter into joint ventures with the General Electric Co. (GE) in the areas of power engineering, consumer products (mainly domestic appliances), medical equipment, and electrical distribution worth a total of $2.6 billion. GE planned to invest $580 million to establish cooperative manufacturing ventures with GEC. Once the joint ventures with GE were operational, about 40 percent of GEC’s revenues would come from joint ventures. The cooperative venture was perceived as symptomatic of a global consolidation taking place among manufacturers of power generation and distribution equipment. GE had been teamed with Metsun, but dropped out to join forces with GEC.

GEC also entered into another joint venture with France’s Compagnie Genérale d’Electricite (CGE) involving industrial automation and controls that would have annual sales of more than $500 million worldwide. GEC placed great importance on its cooperative ventures with CGE of France and GE of the United States to position the company for the changing markets of the 1990s.

In April the EEC and the British government gave GEC and Siemens the go-ahead to acquire Plessey. In doing so, the Monopolies and Mergers Commission set three conditions. First, GEC had to give competitors the technology to make a new communications system called JTIDS, also made by Plessey. Second, the new company must be managed so as not to compromise British national security. Third, GEC could not have any part of Plessey’s radar, communications, and traffic-control businesses, all of which would go to Siemens.

Key Dates:

1886:

The General Electric Apparatus Company is founded by Gustav Binswanger (later Byng) and Hugo Hirst.

1889:

The General Electric Co. Ltd. (GEC) is formed as a private limited company in London.

1900:

GEC is incorporated as a public limited company.

1910:

Hugo Hirst, later Lord Hirst, takes control of the company as chairman and managing director, following Byng’s death.

1919:

GEC establishes Britain’s first separate industrial research laboratories at Wembley.

1961:

GEC takes over Radio and Allied Industries, which manufactures radio and television sets.

1963:

Arnold Weinstock, later Lord Weinstock, becomes managing director.

1967:

GEC acquires Associated Electrical Industries.

1968:

GEC merges with English Electric.

1988:

GEC and Plessey Co. plc form a telecommunications joint venture, GPT.

1989:

GEC and Siemens jointly acquire the assets of Plessey Co.; GEC and France’s Compagnie General D’Electricitie (CGE) form the joint venture GEC Alsthom.

1996:

Lord Weinstock retires; George Simpson becomes managing director.

1999:

GEC sells its defense electronics business to British Aerospace and acquires two U.S. telecommunications companies, changing its name to Marconi pic.

The takeover of Plessey was further delayed by negotiations. In August Siemens and GEC increased their offer and made a final bid of $3.3 billion for Plessey. Under the revised merger plan, outside of North America GEC would wholly own Plessey’s naval systems and avionics businesses as well as its cryptography operations, while Siemens would take over Plessey’s radar and defense systems. Within North America, GEC would wholly own Sippican Inc. and Leigh Instruments Ltd. in Canada and would take 75 percent of Plessey Electronic Systems Corp. in the United States. The GPT telecommunications venture was split 40-60 between Siemens and GEC, with GEC having management control. However, Plessey continued to defend itself from the hostile takeover by entering several new markets, including computers, telecommunications, and automotive electronics. Finally, on September 8, 1989, Siemens and GEC completed their takeover of Plessey.

For fiscal 1989 ending March 31, GEC reported earnings of $1.24 billion, up 13 percent over 1988, on sales of $10.39 billion, up 16 percent over 1988. The increases were attributed to acquisitions and strong performance in electronic systems and power systems. Telecommunications profits fell on growing sales due to declining margins.

During the 1990s GEC began moving away from the domestic electrical goods market and into electronics and modern technology, particularly in the defense sector. In 1990 GEC acquired parts of Ferranti, including its radar business and other gear for military aircraft. The acquisition made GEC one of Europe’s main defense-electronics companies. Ferranti had recently won the highly prized $3.2 billion contract to design the radar for Europe’s new fighter aircraft.

As part of its acquisition of Plessey, GEC merged its Marconi Electronic Devices unit with Plessey Semiconductors to create GEC Plessey Semiconductors. The new unit was expected to have 1990 sales of $200 million. By 1991 GEC was the fifth largest electronics firm in Europe. GEC’s vision for the 1990s, as articulated by Arnold Weinstock, was to become a world force in semiconductors and telecommunications. In 1992 a single European market became a reality.

In 1994 GEC entered into a joint venture with Italian state-owned Finmeccanica SpA of Rome for civil and military radio communications, electronics, and telematic products. In 1995 GEC acquired Vickers Shipbuilding and Engineering Ltd., and Lord Weinstock retired to become chairman emeritus the following year. Under his leadership GEC had become the undisputed leader of the British electrical industry and a top European defense-electronics contractor.

Reorganization under Lord Simpson: 1995-99

In 1996, Lord George Simpson took over as managing director, bringing with him a wave of new corporate management. He initiated a major reorganization aimed at focusing the company on its key business strengths and on high-growth, high-technology business areas. Several subsidiaries were sold off, including Express Lifts, Satchwell Controls, AB Dick, the Wire and Cables Group, Marconi Instruments, and GEC Plessey Semiconductors. New acquisitions and alliances were planned as the company sought to reduce its dependence on joint ventures and focus on defense, telecommunications, and industrial electronics.

In February 1998 the firm’s head office moved to One Bruton Street, London. The company eliminated some of its dependence on joint ventures by floating GEC Alstom, a $6.8 billion rail-and-power venture with Alcatel Alsthom of France, as a public company and buying Siemens’ 40 percent stake in GPT. In June GEC enhanced its defense holdings by acquiring the U.S. defense-electronics company Tracor for $1.4 billion. This became part of Marconi North America, a Marconi Electronic Systems company.

Major Shifts: 1999 and Beyond

Following an announcement in early 1999 of a proposed merger of GEC’s defense electronics business, Marconi Electronic Systems, with British Aerospace, GEC sold Marconi Electronic Systems to British Aerospace for $12 billion, mostly in stock. Simpson planned to use GEC’s estimated $4.5 billion in cash to reposition GEC as a high-tech, high-growth, and high-margin company. GEC’s remaining businesses would be in telecommunications, high technology, and a variety of industrial holdings.

The company’s major divisions would be Marconi Communications, which made advanced telecommunications equipment for voice and data transmission, and Marconi Systems, which consisted of three U.S. high-tech companies: Picker, renamed Medical Systems, was a world leader in medical imaging; Gibarco, renamed Commerce Systems, was a leading supplier of petroleum retailing equipment and systems; and Videojet, renamed Data Systems, produced coding and tracking systems for a variety of markets. Marconi Communications would account for about half of GEC’s estimated $6 billion in revenues.

In April 1999 GEC acquired Reltec, a U.S. telecommunications network products company, for $2.1 billion, and announced plans to acquire Fore Systems, a U.S. Internet switching and networking equipment company, for $4.5 billion. Reltec was a world leader in next-generation broadband access equipment, and FORE Systems, Inc. reportedly made one of the best switches in the world for Internet traffic. With these two major acquisitions, GEC was confident it had the technology it needed to compete in the rapidly changing telecommunications industry, which was being transformed by the growth of the Internet and the growing volume of data transmissions. By the end of 1999 Fore System’s name had been changed to Marconi Communications and its top management replaced. The Pittsburgh firm would become Marconi pic’s North American headquarters.

Effective December 1, 1999, GEC was renamed Marconi pic. The company relisted itself as an IT company on the London stock exchange and planned to pursue a listing on the NASDAQ during 2000. The company launched a new print and television advertising campaign in the fall of 1999 to change its image from a secretive defense-oriented company to a global telecommunications company to rival Nortel, Lucent Technologies, and Cisco Systems. In addition to its new name, the company had a new chairman, Sir Roger Hum, while Lord Simpson remained as Marconi’s CEO.

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